by Raul de Frutos on AUGUST 15, 2016

One of the causes of falling aluminum prices over the past few years was the rise in China’s aluminum exports. But Chinese exports started to calm down this year, helping aluminum prices to recover.

China exported 390,000 metric tons of unwrought aluminum in July, down 9.3% from July of last year. Chinese aluminum exports have fallen around 7% for the first seven months of 2016. Lower Chinese aluminum exports suggest stronger aluminum demand in China coupled with some supply cuts.

According to the latest figures released by the International Aluminum Institute(IAI), Chinese aluminum production has now fallen on a year-over-year basis in five out of the last six months. For the first half, Chinese aluminum production has fallen by 3.3% compared to the same period last year. This will be the first year where Chinese annual aluminum output declines if Chinese smelters don’t restart idled capacity. But, will they?

US Producers Warning Of Higher Chinese Supply in H2

During their second quarter earnings calls, some U.S. producers pointed to higher Chinese supply as one of the biggest risk for the aluminum industry in the second half. Century Aluminum believes that aluminum production in China could increase in the high single digits in 2016. For that to happen, we would need to see a sharp increase in China’s aluminum output in the coming months. Norsk Hydro also expects some of the Chinese capacity to come back later this year.

Prices: Not Too High But Rising Steadily

Three-month aluminum LME price rising this year. Source: MetalMiner analysis of Fastmarkets data.

The ongoing fall in Chinese exports and a good-looking demand picture thanks to Chinese government stimulus are supporting aluminum prices this year. Unlike other metals, aluminum prices haven’t really skyrocketed but they are drawing a nice uptrend this year, signaling that investors’ sentiment on the metal is improving. If China doesn’t restart capacity, we could continue to see prices climbing higher.